CCG Shareholders Cry Foul

The news last week that Cordiant Communications Group's top management had quietly renegotiated their employment contracts to provide up to two and a half times their annual salary if their contracts are terminated at the crippled holding company triggered outrage among investors such as U.K.-based Active Value Fund.Shareholders were not informed of the changes, which were made after April 25, when CCG announced the loss of Allied Domecq. Last year the client represented some 3.4 percent of CCG's revenue, or $29.3 million. As a result of the loss, CCG had to renegotiate terms with lenders, with financing extended until July 15. The contract revisions call for CEO David Hearn and finance director Andy Boland to pocket up to a year's salary in bonuses if certain asset-disposal targets are met, if they secure a debt-for-equity swap or if they're successful in selling the entire company. The executives had pre-existing clauses giving them 18 months' salary if they lose their jobs following a change in control in CCG ownership.Hearn, 46, earns a base salary of $896,000. Boland, 33, receives $407,352."We have a great concern that shareholder concerns are not being taken into consideration," said Brian Myerson, who runs Active Value with Julian Treger. "Even if it's legal—which I'm not sure it is—it's certainly not within the spirit of openness and disclosure to be expected of a public company."Sources said Britain's Takeover Panel forbids changing directors' employment contracts if a bid has been made or if an offer is believed to be imminent, but the panel advised Cordiant that changes could be made if none of the involved parties objected.Within a day after Cordiant's Allied Domecq announcement, the company issued a release saying it had received "very preliminary approaches, which may or may not lead to an offer being made for the company."CCG chairman Nigel Stapleton outlined the contract revisions in a letter to Boland dated June 2. The finance director can expect a bonus of 40 percent of his salary this year if CCG achieves a debt-for-equity swap. Hearn stands to pocket 50 percent of his salary as a bonus in the case of a debt-equity swap, according to a letter dated June 4 in which Stapleton described Hearn's new terms. For sales of individual assets or the entire company, in deals worth up to $249 million, Hearn would get 2 percent of his salary for each $17 million brought in as pretax proceeds, net of associated costs; Boland would get 1.5 percent. In transactions worth more than $249 million, Hearn would get 6.4 percent of his salary and Boland 4.3 percent for each $17 million achieved. Stapleton wrote that the pay scales had been determined after "detailed consultation" with CCG's "advisors and lenders."Hearn joined CCG's Bates Worldwide in March 2002 and took over from CCG CEO Michael Bungey in January. Boland succeeded Art D'Angelo as finance director when D'Angelo left for McCann WorldGroup in January. When their original contracts were signed, both executives' bonuses were tied to profit goals.Active Value, which owns 14.1 percent of CCG's shares, has been the most vocal among investors who say shareholders stand to fare worst in most of the scenarios posed by the bidders who have done due diligence. Those companies are Publicis Groupe, WPP Group and U.S. vulture fund Cerberus Capital Management working with Grey Global Group.Adrian Duffield, an outside PR rep for Cordiant, declined to comment on executive-compensation matters. —NOREEN O'LEARY

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CCG Shareholders Cry Foul

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